Paul Thomas gives his thoughts on the investment markets in the first six months of 2018.
We know that virtually all types of investments; property, bonds, gilts, shares etc exhibit some sort of volatility. Conventional thinking expects the different asset classes to move in different directions at different times, under differing economic circumstances, providing a spread of risk.
Over the last five months in particular, we have witnessed an unpleasant eclipse! This is because key asset classes have moved lower at the same time fixed interest investments, which make up the majority of many peoples’ portfolios, fell throughout the last six months, in tandem with stocks and shares.
The demand for fixed interest plans dropped because of seemingly unchecked inflation. Shares also went down, because they do from time to time. This time a stronger Pound and more uncertainty over the B(rexit) word saw the FTSE 100, for example, drop from 7,700 this January to 6,850 by the end of March.
The problem is, cautious investors took the brunt of this unwelcome correlation, with some really very defensive portfolios falling by as much as 4% – ouch!! Anyone who received a statement toward the end of March would have had cause for concern.
Happily, the cause of the problem, inflation, seems to have peaked and there are few inflationary pressures in the economy, save for a rise in oil prices. Share prices have recovered their value and the picture now is very different.
So, everything is good then?
Well, maybe so but, if you are a cautious investor, it’s worth thinking about what you are doing and why. The reality is that cash is simply NOT an option – even for the most timid of investors. Inflation at 3% will erode the spending power of £100 to £73.755 in 10 years, so you simply have no choice but to entertain some volatility IF you want to have any chance of combating inflation. Our least speculative portfolio with JM Finn did in fact lose nearly 4% in the first three months of this year.
That’s pretty eye-watering stuff. However, even including that loss, that same fund made more then 45% over the last five years and had just about recovered it’s position by the middle of May, helped by the rebalancing process.
However, the biggest requirement is for investor patience, regular contact with your adviser, and to only make changes when it’s conducive to your long-term benefit.
Please contact us for more information or to hear how we may be able to help you.